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UNCLAS SECTION 01 OF 13 ROME 000126 
 
SIPDIS 
 
SIPDIS 
 
SECSTATE PLEASE PASS TO EB/IFD/OIA 
SECSTATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB OPIC KTDB USTR PGOV IT
SUBJECT: INVESTMENT CLIMATE STATEMENT 2008 - ITALY 
 
REF: A) 07 STATE 158802, B) 07 ROME 147, C) 07 ROME 149 
 
¶1.  SUMMARY:  While the Government of Italy (GOI) continues to court 
foreign investors, economic reforms or other steps to ensure a more 
welcoming investment climate have been modest.  Recent positive 
developments include passage of a more efficient bankruptcy law and 
the incorporation of the EU Takeover Directive into Italian law. 
 
¶2.  Despite public statements and visits to the U.S. of high level 
government officials to encourage American investment in Italy, 
historical stumbling blocks to investment remain unaddressed.  The 
inefficient delivery of public services, a slow judicial system, and 
bureaucratic red tape all discourage Foreign Direct Investment 
(FDI).  Although Prime Minister Prodi's government has worked to 
meet EU demands that Italy put its fiscal house in order, the 
government has refrained from undertaking wide-ranging economic 
reform, choosing instead to focus on limited liberalization measures 
in selected sectors. 
 
¶3.  Italy's economy, the sixth largest market economy in the world, 
is fully diversified.  Small- and medium-sized firms dominate the 
Italian economy.  Family-owned companies account for 93 percent all 
Italian companies and 85 percent of GDP.  In the U.S., family-owned 
companies represent 96 percent of companies, but account for only 40 
percent of GDP. Germany, France, and the U.S. remain Italy's most 
important export markets.  Industrial activity is concentrated in 
the north -- one of the most industrialized and prosperous areas in 
Europe.  By contrast, the center and the south in particular are 
less developed.  Unemployment in some areas is three times that of 
the north and per capita incomes are substantially lower.  End 
summary. 
 
OPENNESS TO FOREIGN INVESTMENT 
----------------------------- 
 
¶4.  Foreign direct investment in Italy is generally welcomed and 
encouraged.  The current government, headed by Prime Minister Romano 
Prodi, offers strong rhetorical support for foreign investment and 
trimming bureaucratic obstacles to economic activity, but has been 
able to accomplish little in the way of substantive reform due to 
the fragility of the eight party center-left coalition.  For 
example, members of Prodi's coalition prevented a 25 billion euro 
merger between the Spanish company Abertis and an Italian toll-road 
operator.  GOI opposition to the so-called "Abertis-Autostrade" deal 
illustrates an unwillingness to allow foreign investment in large, 
high-profile Italian companies.  Similarly, in April 2007, AT&T 
withdrew its bid for Telecom Italia, Italy's telecom company.  AT&T 
did not specify the reason for its withdrawal, but may have been 
dissuaded by political opposition to the sale of Telecom Italian to 
a foreign company.  Although Prime Minister Romano Prodi said he 
would not block the sale, he and several of his ministers said they 
hoped an "Italian solution" could be found.  AT&T's decision 
reflects a widespread opinion that it is becoming harder to do 
business in Italy.  GOI efforts to sell its 49.9 percent share of 
Alitalia, Italian flag carrier, have also been hampered by concerns 
about regulatory transparency, hostile labor unions, and the 
possibility of government intervention.  In this case as well, an 
American-led group walked away when the opacity of the process was 
revealed and labor and political hostility emerged. 
 
¶5.  As an EU Member State, Italy is bound by EU treaties and 
legislation, some of which have an impact on business investment. 
As specified under the right of establishment set forth in the EU 
treaty (1957 Treaty of Rome), Italy provides national treatment to 
foreign investors established in Italy or in another EU member 
state, except in a few instances.  Exceptions include limited access 
to government subsidies for the film industry, added capital 
requirements for banks domiciled in non-EU member countries, and 
restrictions on non-EU-based airlines operating domestic routes. 
Italy also has restrictions in the shipping sector. 
 
¶6.  The GOI does have the authority to restrict foreign investment 
in some cases.  The government can block mergers involving foreign 
firms for "reasons essential to the national economy" or if the home 
government of the foreign firm applies discriminatory measures 
against Italian firms.  Industrial sectors such as defense and 
aircraft manufacturing are either closely regulated or are 
off-limits to foreign investors.  EU and Italian anti-trust laws 
give EU and Italian authorities the right to review mergers and 
acquisitions over a certain financial threshold. 
 
¶7.  Foreign investors are not prevented from investing in the 
privatization of government-owned companies, except in the defense 
sector.  Privatization strategies often entail the GOI retaining a 
 
ROME 00000126  002 OF 013 
 
 
"golden share" (a government stake with controlling authority) in 
the company or establishing a core group of Italian of shareholders 
who agree to keep their shares for a minimum period.  Italy is the 
only EU member country to keep wide-ranging "golden share" regimes 
for privatized companies.  According to EU data, there are 20 
EU-based companies in which Member States hold a golden share -- 
five of these are Italian (Eni, Enel, Finmeccanica, Terna, and 
Telecom Italia). 
 
¶8.  The Italian Trade Commission (ICE) reported in January 2007 that 
7,200 foreign companies operate in Italy, employing almost one 
million workers.  According to ICE, the stock of foreign investment 
in Italy equals 12 percent of GDP, far less than many EU nations. 
Approximately 77 percent of foreign companies operating in Italy are 
located in the north, with the Lombardy Region alone hosting 46 
percent.  The ICE study cited as key obstacles to foreign 
investment: labor taxes, lack of labor flexibility, red tape, and 
high corporate taxes. 
 
¶9.  The World Economic Forum's 2007-2008 World Competitive Survey 
ranked Italy 46th among the 122 countries surveyed; this is a slight 
improvement from Italy's ranking in 2006 of 47th, but does not 
reflect a substantial improvement in terms of performance. Italy's 
weak points are macroeconomic fragility (related to the level of 
public debt), inefficiency in the labor market, lack of 
infrastructure, and institutional and bureaucratic inefficiencies. 
Italy's strong points are the quality of health care and the primary 
education system, the diffusion of technologies, and the level of 
sophistication of the internal systems of Italian companies.  Press 
reports also cite difficulties in obtaining Italian visas to work in 
certain sectors (the fashion industry, for example). 
 
¶10.  A measure passed as part of the 2008 budget will allow Italian 
consumers to file class action lawsuits against corporations.  The 
measure goes into force in July 2008.  Some observers predict class 
action lawsuits will become a powerful tool for consumers' rights, 
pointing to planned class action suits against a water company for 
water shortages and another against the President of the Campania 
Region for failure to resolve the region's waste emergency.  The 
Italian industrialist's association, Confindustria, opposed the 
legislation, arguing it will threaten the competitiveness of Italian 
manufacturing.  Some observers have warned this legislation may have 
unexpected consequences, but at this point it is too early to gauge 
its impact. 
 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶11.  In accordance with EU directives, Italy has no foreign exchange 
controls.  There are no restrictions on currency transfers, only 
reporting requirements.  Banks are required to report any 
transaction over 5,000 euro (USD7,500) due to money laundering and 
terrorism financing concerns.  Profits, transfers, payments, and 
currency transfers may be freely repatriated.  Residents and 
non-residents may hold foreign exchange accounts. 
 
 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶12.  The Italian constitution permits expropriation of private 
property for "public purposes," defined as essential services or 
indispensable for the national economy.  In fact, compensation is 
guaranteed and must adequately compensate the proprietor for losses. 
 There are a few long-standing disputes in Italy involving U.S. 
citizens who assert that municipal governments unjustly expropriated 
their real property or inadequately compensated them.  These 
disputes do not reflect any GOI discrimination against U.S. 
investments, companies, or representatives in any specific sector of 
activity. 
 
 
DISPUTE SETTLEMENT 
------------------ 
 
¶13.  Italy's inefficient judicial system is frequently cited as a 
deterrent to foreign Investors.  Civil trials average seven years in 
length.  U.S. investors in Italy can choose among different means of 
dispute resolution.  The method chosen should be specifically set 
forth in a contract. 
 
¶14.  Though notoriously slow, the Italian legal system is consistent 
with generally recognized principles of international law, with 
 
ROME 00000126  003 OF 013 
 
 
provisions for enforcing property and contractual rights.  Italy has 
a written and consistently applied commercial and bankruptcy law. 
While the Italian judiciary is considered independent of the 
government, Italian judges may engage in political partisanship. 
Italian courts accept and enforce foreign judgments only upon 
request. 
 
¶15.  At the end 2007, the GOI approved new bankruptcy regulations 
which went into effect on January, 1, 2008.  The new regulations -- 
analogous to U.S. Chapter 11 restructuring -- provide more 
flexibility between parties to reach a solution before declaring 
bankruptcy.  The judicial role in bankruptcy procedures has been 
drastically limited to simplify and speed up the process. The new 
regulations change the requirements for declaring a company 
insolvent, and they encourage corporate reorganization or debt 
restructuring as an alternative to liquidation. 
 
¶16.  Italy is a member of the World Bank's International Center for 
the Settlement of Investment Disputes (ICSID).  Italy has signed and 
ratified the Convention on the Settlement of Investment Disputes 
Between States and Nationals of Other States, and is a signatory of 
the New York Convention of 1958 on the Recognition and Enforcement 
of Foreign Arbitral Awards. 
 
 
PERFORMANCE REQUIREMENTS/INCENTIVES 
----------------------------------- 
 
¶17.  The GOI is in compliance with WTO Trade-Related Investment 
Measures (TRIMS) obligations.  Foreign investors face specific 
performance requirements only in the telecommunications sector. 
However, this has not deterred foreign investment in 
telecommunications.  For example, in 2005, Weather Investments, 
owned by an Egyptian financier, bought Wind, Italy's second largest 
telecommunications company; Vodafone, Italy's second largest mobile 
operator, is also foreign-controlled. 
 
¶18.  The GOI offers incentives to encourage private sector 
investment in economically depressed regions, particularly southern 
Italy.  (For more details, please visit the website: 
www.InvestinItaly.com.)  The Ministry of Universities and Research 
has identified, funded, and signed Framework Program Agreements with 
eleven "Technology Districts" and public-private joint laboratories 
focused on strategic sectors.  Technology Districts, created to 
facilitate cooperation between public and private researchers and 
venture capitalists, support the research and development of key 
technologies, strengthen industrial research activities, and promote 
innovative behavior in small- and medium-sized enterprises. 
 
¶19.  The Italian tax system does not discriminate between foreign 
and domestic investors.  The 2008 budget reformed the structure of 
the tax system (Legislative Decree No. 344/2003), reducing corporate 
income tax (IRES) rates by 5.5 nominal points from 33 to 27.5 
percent, and trimming the regional business tax (IRAP) from 4.35 to 
3.9 percent.  These tax cuts are in response to increased 
competition for investment, particularly as the enlargement of the 
EU to 27 members brought Italy into competition with low cost, low 
tax East European states.  In addition, Germany's decision to cut 
its corporate tax rates by ten points made Italy's corporate tax 
rate the highest in the EU. 
 
¶20.  The GOI has tried to off-set the effect of corporate tax cuts 
on public finances by introducing compensatory measures.  They 
include: 
 
-- setting new limits to the deductibility of interest; 
 
-- abolishing accelerated depreciation; 
 
-- revising the tax treatment of consolidated reporting; and 
 
-- increased enforcement of existing tax laws (cracking down on tax 
evasion). 
 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶21.  There is no limitation in the Italian constitution or civil law 
on the right to private ownership and establishment. 
 
 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
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¶22.  Enforcement of Intellectual Property Rights (IPR) remains a 
serious problem in Italy.  It does not meet standards of other 
developed Western European countries in IPR enforcement.  Relatively 
few IPR cases are brought to trial, and judges are generally 
reluctant to sentence offenders to prison.  The Customs Police 
actively seizes pirated and counterfeit goods along the border. 
Italy's national financial police force, the Guardia di Finanza, has 
grown more effective in IPR enforcement.  However, many local 
governments do little to stop the sale of pirated and counterfeit 
goods by street vendors. 
 
¶23.  In April 2005, Italy enacted a new law empowering police to 
fine consumers of pirated and counterfeit items up to 10,000 euro. 
In 2006, several municipalities, such as Florence, began to 
undertake aggressive publicity campaigns to alert Italians and 
foreign tourists of the new law. 
 
¶24.  Italy is a member of the Paris Union International Convention 
for the Protection of Industrial Property (patents and trademarks) 
to which the United States and about 85 other countries adhere. 
U.S. citizens generally receive national treatment in acquiring and 
maintaining patent and trademark protection in Italy.  After filing 
a patent application in the United States, a U.S. citizen is 
entitled to a 12-month period within which to file a corresponding 
application in Italy and receive rights of priority.  Patents are 
granted for 20 years from the effective filing date of application 
and are transferable.  U.S. authors can obtain copyright protection 
in Italy for their work first copyrighted in the United States, 
merely by placing on the work, their name, date of first 
publication, and the symbol (c). 
 
¶25.  In 2000, the Italian Parliament enacted a long-awaited 
"anti-piracy" law, providing for higher criminal penalties, 
including prison sentences of up to four years, for copyright (IPR) 
violations.  Largely because of the enactment of this law (thought 
to be among the best in the EU), Italy has since been removed from 
the U.S. Trade Representatives Special 301 IPR "Priority Watch 
List."  Italy remains on the Special 301 Watch List, however, 
because of its continuing failure to enforce this and other IPR 
protection laws. 
 
¶26.  Copyrighted works sold in Italy generally must bear a sticker 
issued by SIAE, a royalty collection agency operating under 
authority from the Ministry of Culture.  While the music and film 
industries are largely satisfied with the stickering system, 
software industry associations have complained the system remains 
overly burdensome and fails to provide adequate protection from 
piracy.  In January 2001, the Italian government approved exemptions 
for software purchased for business use from the SIAE sticker 
requirement. 
 
¶27.  In 2005, Italy's Parliament passed legislation that some 
copyright industry associations believe weakens Italy's IPR legal 
framework.  Italy's Internet piracy statute was revised to reduce 
criminal sanctions for on-line piracy conducted without a profit 
motive.  While illegal file sharing technically remains a crime, 
only those who engage in piracy for monetary gain now face jail 
time, while all others face administrative fines only.  In 2005, 
Parliament passed the "ex-Cirielli" law which shortened the period 
after which criminal cases pending trial are automatically 
dismissed.  Separately, a broad amnesty was passed in 2006, which IP 
industries believe voided many sentences and criminal prosecutions 
against IPR pirates. 
 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶28.  In an effort to improve accountability and competition in the 
wake of the 2003-04 collapse of the dairy firm Parmalat and the 
scandal which ensued, Italy's Parliament approved a law in December 
2005 to overhaul the Bank of Italy and improve corporate governance 
and oversight.  Italy also is subject to single market directives 
mandated by the EU, which are intended to harmonize regulatory 
regimes among EU countries. 
 
¶29.  The 2008 "Index of Economic Freedom," published by the Wall 
Street Journal and Heritage Foundation, ranked Italy as having "the 
world's 64th freest economy."  The study highlighted government 
interference in the economy, corruption, and a slow court system as 
contributing to Italy's ranking below less developed nations such as 
Uganda, Belize, and Jamaica. 
 
 
ROME 00000126  005 OF 013 
 
 
¶30.  According to a 2004 World Bank study, an entrepreneur wishing 
to start a business in Italy must follow 16 procedures, spend an 
average of 62 days, and pay around USD 5,000 in fees.  The study 
found that it costs more to open a business in Italy than anywhere 
else in Europe, with the exceptions of Greece and Austria. 
Government efforts to enable entrepreneurs to "open a business in a 
day" have not been successful. 
 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶31.  Financial resources flow relatively freely in Italian financial 
markets and credit is allocated on market terms.  Foreign 
participation in Italian capital markets is not restricted; foreign 
investors are able to get credit on local markets and have access to 
a variety of credit instruments.  The Italian stock exchange ("Borsa 
Italiana") has fewer than 300 companies.  In recent years, Borsa 
Italiana established two new segments of the market devoted to 
smaller companies:  "STAR" and "Mercato Expandi," launched in 2001 
and 2003, respectively.  In 2007, the Borsa merged with the London 
Stock Exchange.  There is some expectation that governance standards 
of the Milan market will improve as a result. 
 
¶32.  Financial services companies incorporated in another EU member 
state may offer investment services in Italy without establishing a 
local presence.  U.S. and other firms based in non-EU member states 
may operate under authorization from Italian Companies and Stock 
Exchange Commission (CONSOB), the oversight authority for securities 
markets, corporate governance, and company audits. 
 
¶33.  Previously, Italian government bonds absorbed a large share of 
available domestic investment.  This share has declined as interest 
rates on government bonds dropped during Italy's preparation for the 
EU economic and monetary union.  Even with lower yields, Italian 
government bonds are considered a safe haven for domestic investors 
burned by defaults on Argentinean, as well as Parmalat and Cirio 
bonds. 
 
BANKING 
------- 
 
¶34.  The banking sector has undergone significant consolidation in 
the last decade, with about 60 percent of total Italian banking 
assets involved.  Following the appointment of Marco Draghi as Bank 
of Italy Governor, Mario Draghi, the process of consolidation picked 
up sharply.  The top five banks' market share is larger than in 
Germany, but smaller than in France.  Two major mergers have been 
implemented in 2007 involving Intesa and San Paolo-IMI, Unicredit 
Group and Capitalia.  These transactions created Italy's two largest 
banking groups.   These groups are now major players in the European 
market.  Other transactions involved cooperative banks.  In April 
2007, Banche Popolari Unite and Banca Lombarda e Piemontese created 
a new cooperative bank group named Unione di Banche Italiane (UBI 
Banca), Italy's fifth largest bank.  In July 2007, the merger 
between Banco Popolare di Verona e Novara and Banca Popolare 
Italiana created Italy's largest cooperative banking group, Banco 
Popolare.  In November 2007, Monte dei Paschi di Siena (MPS) bought 
Banca Antonveneta from Spain's Banco Santander.  MPS was the last of 
the large Italian banks not to merge or be acquired.  This purchase, 
in a rapidly consolidating market, will make the Tuscan-based bank 
Italy's third largest lender with around 3,000 branches and a strong 
presence in the prosperous north-east of Italy.  Currently, the 
country's largest banks are: Unicredit Group, Intesa San Paolo, 
Monte dei Paschi di Siena, Banco Popolare, and UBI Banca.  The total 
assets of Italy's five largest banks are equal to 53.5 percent of 
total banking assets. 
 
¶35.  Efficiencies obtained from mergers and the entry of foreign 
banks are expected to have an impact on retail banking fees, 
currently among the highest in Europe.  Bank of Italy Governor 
Draghi has stated a clear preference for increased competition in 
Italian credit and banking markets and has urged Italian banks to 
become more competitive by cutting high transaction charges.  Draghi 
believes that domestic banking consolidation has been too slow and 
that Italian banks should proactively merge among themselves to be 
more competitive against foreign banks.  Draghi has publicly stated 
that, while "patriotism is a virtue, it must be practiced under set 
rules, which these days are European, and not protectionist." 
 
¶36.  Non-bank companies (either Italian or foreign) are not allowed 
to acquire more than 15 percent of a bank's capital.  Complex 
cross-shareholding has often been used to fight off takeover 
attempts in the financial sector.  The presence of foreign 
 
ROME 00000126  006 OF 013 
 
 
intermediaries on the Italian market expanded in the last several 
years.  In late 2005, the Dutch Bank ABN-AMRO obtained complete 
control of an Italian medium-sized bank, Banca Antonveneta, recently 
sold to Monte Dei Paschi di Siena; while in May 2006, the French 
banking group BNP Paribas acquired full control of Banca Nazionale 
del Lavoro, one of Italy's primary banks.  Credit Agricole acquired 
a controlling interest in Cassa di Risparmio di Firenze, di Parma e 
Piacenza and Banca Popolare Friuladria. 
 
POLITICAL VIOLENCE 
------------------ 
 
¶37.  Political violence is a low threat to foreign investments in 
Italy. 
 
CORRUPTION 
---------- 
 
¶38.  Italy ratified the 1997 OECD Convention on Combating Bribery in 
September 2000.  Italy has signed, but not ratified, the United 
Nations Convention Against Corruption, which was adopted in 2003 and 
came into force on December 14, 2005.  Anecdotal evidence strongly 
suggests that corruption remains a serious problem, especially in 
southern Italy.  For example, in the city of Taranto, corruption and 
the serious mismanagement of public funds resulted in the city's 
"bankruptcy," with 700 million euro of debt. 
 
¶39.  Transparency International's Corruption Perceptions Index 2007 
ranked Italy the 4lst least corrupt country in the world, up from 
its 2006 ranking of 45th. Italy is mentioned among the countries 
that have significantly improved their rating since the 2006 index. 
Nevertheless, it trails all West European states with the exception 
of Greece. 
 
¶40.  Corruption is punishable under Italian law.  In January 2003, 
Italy enacted a law creating a High Commissioner to prevent and 
combat bribery within public administration.  As in all judicial 
processes, much discretion regarding punishment is left to the 
presiding judge.  Most corruption in the recent past has involved 
government procurement or bribes to tax authorities.  Bribes are not 
considered deductible business expenses under Italian tax law. 
 
¶41.  Organized crime is present throughout Italy, but is 
concentrated in four regions of the south (Sicily, Calabria, 
Campania, and Puglia).  In September 2007, the Italian confederation 
of trade, tourism, and service company operators released a report 
estimating that organized crime (Mafia, Camorra, 'Ndrangheta and 
Sacra Corona Unita) is Italy's largest "company" with sales of 90 
billion euro, or seven percent of GDP.  Organized crime is involved 
in racketeering, loan sharking, drug smuggling, and prostitution. 
 
¶42.  Researchers estimate Italy's underground economy may be 
equivalent to between 17 and 27 percent of GDP.  A great deal of 
economic activity is kept "underground" to avoid taxation. 
 
 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
¶43.  As of December 2007, Italy has bilateral investment agreements 
with the following countries: 
 
Albania 
Algeria 
Angola (signed, not enforced) 
Argentina 
Armenia 
Azerbaijan 
Bangladesh 
Barbados 
Belarus 
Belize (signed, not enforced) 
Bolivia 
Bosnia and Herzegovina 
Brazil (signed, not enforced) 
Bulgaria 
Cape Verde (signed, not enforced) 
Chad 
Chile 
China 
Colombia (signed, not enforced) 
Congo 
Cote d'Ivoire (signed, not enforced) 
Croatia 
 
ROME 00000126  007 OF 013 
 
 
Cuba 
Czech Republic 
Democratic Republic of Congo (signed, not enforced) 
Dominican Republic (signed, not enforced) 
Ecuador (signed, not enforced) 
Egypt 
Eritrea 
Estonia 
Ethiopia 
Gabon 
Georgia 
Ghana (signed, not enforced) 
Guatemala (signed, not enforced) 
Guinea 
Hong Kong, China 
Hungary 
India 
Indonesia 
Iran, Islamic Republic of 
Jamaica 
Jordan 
Kazakhstan 
Kenya 
Korea, DPR of (signed, not enforced) 
Korea, Republic of 
Kuwait 
Latvia 
Lebanon 
Libya 
Lithuania 
Macedonia, Republic of 
Malawi (signed, not enforced) 
Malaysia 
Malta 
Mauritania (signed, not enforced) 
Mexico 
Moldova, Republic of 
Mongolia 
Morocco 
Mozambique 
Nicaragua 
Nigeria 
Oman 
Pakistan 
Paraguay (signed, not enforced) 
Peru 
Philippines 
Poland 
Qatar 
Romania 
Russian Federation 
Saudi Arabia 
Slovakia 
Slovenia 
South Africa 
Sri Lanka 
Sudan (signed, not enforced) 
Syrian Arab Republic 
Tunisia 
Turkey 
Uganda 
Ukraine 
United Arab Emirates 
Tanzania, United Republic of 
Uruguay 
Uzbekistan 
Venezuela 
Vietnam 
Yemen (signed, not enforced) 
Zambia (signed, not enforced) 
Zimbabwe (signed, not enforced) 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
¶44.  The U.S. Overseas Private Investment Corporation (OPIC) does 
not operate in Italy.  However, in March 2003, OPIC signed a 
Memorandum of Understanding with its Italian counterpart, SIMEST 
(Societa Italiana per le Imprese all'Estero),  to expand 
cooperation, particularly on projects in third countries.  Italy, 
through its Export Credit Agency, SACE, has signed a memorandum of 
understanding with the World Bank's Multilateral Investment 
Guarantee Agency (MIGA). 
 
 
ROME 00000126  008 OF 013 
 
 
LABOR 
----- 
 
¶45.  Unemployment in Italy is moderate at 5.6 percent (third quarter 
2007), below the average of 7.3 percent among euro zone countries 
(September 2007).  Italy's unemployment rate is currently at the 
lowest level since 1992.  This reflects liberalized temporary labor 
regulations, legalization of some underground employment, and 
Italy's slight economic recovery.  Traditional regional disparities 
remain unchanged, with the southern third of the country posting a 
10.3 percent unemployment rate -- compared to 3.3 percent in 
northern and 4.7 percent in central Italy.  Despite these 
differences, internal migration within Italy remains modest.  Labor 
shortages in the North are often filled by unskilled and 
semi-skilled immigrants from Eastern Europe or North Africa. 
 
¶46.  Italy's labor force is fairly well-educated.  According to a 
2006 national survey, 9.7 percent of people aged 15 and older held 
university degrees and 42 percent completed upper secondary 
education.  According to the OECD 2005 Economic Review of Italy, the 
private internal rate of return -- which measures incentives to 
invest in human capital -- is much lower for higher education than 
the OECD average, indicating there may be limited incentive for 
Italians to pursue higher education.  This is due to the fact that 
persons with higher educations do not earn substantially more than 
persons with upper secondary educations.  Therefore, firms 
interested in investing in Italy may have difficulties finding 
highly specialized Italian employees. 
 
¶47.  There are legal obstacles to hiring and firing workers. 
Companies may bring in a non-EU employee only after the 
government-run employment office has certified that no qualified, 
unemployed Italian is available to fill the position.  Work visas 
are subject to annual quotas, although intra-company transfers are 
exempt from quota limitations. 
 
¶48.  In recent years, the Italian labor market has become somewhat 
more flexible.  A series of legal reforms has encouraged the hiring 
of part-time employees by reducing employer social security 
contributions for these workers.  New laws have also created 
opportunities for outsourcing, job-sharing, and use of private 
employment services.  New types of contracts now exist that allow 
for reduced labor costs.  However, high costs and legal obstacles 
associated with laying-off workers still remain a disincentive to 
adding employees. 
 
¶49.  Italy is an International Labor Organization (ILO) member 
country.  Terms and conditions of employment are periodically fixed 
by collective labor agreements in different professions.  Most 
Italian unions are grouped into four major national confederations: 
the General Italian Confederation of Labor (CGIL), the Italian 
Confederation of Workers' Unions (CISL), the Italian Union of Labor 
(UIL), and the General Union of Labor (UGL).  The first three 
organizations are affiliated with the International Confederation of 
Free Trade Unions (ICFTU), while the UGL has been associated with 
the World Confederation of Labor (WCL).  The confederations 
negotiate national level collective bargaining agreements with 
employer associations, which are binding on all employers in a 
sector or industry. 
 
FOREIGN TRADE ZONES/FREE PORTS 
------------------------------ 
 
¶50.  There are two free trade zones in Italy, located in Trieste and 
Venice, both in the northeast.  Goods of foreign origin may be 
brought in without payment of taxes or duties, as long as the 
material is to be used in the production or assembly of a product 
that will be exported.  The free-trade zone law also allows a 
company of any nationality to employ workers of the same nationality 
under that country's labor laws and social security systems. 
 
Benefits of the free-trade zones include: 
 
-- Customs duties deferred for 180 days from the time the goods 
leave the free trade zone to enter another EU country. 
 
-- The goods may undergo transformation free of any customs 
restraints. 
 
-- Absolute exemption from any duties on products coming from a 
third country. 
 
U.S. Companies in Italy 
----------------------- 
 
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¶51.  The largest U.S. companies in Italy, based on number of 
employees, are:  IBM, General Electric, Pfizer, Whirlpool, 
Electronic Data Systems (EDS), Accenture, Lear, and United 
Technologies. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
¶52.  Italy lags behind many of its fellow EU member states in 
attracting and maintaining foreign investment.  According to Bank of 
Italy figures, net foreign investment into Italy in 2006 totaled USD 
29.9 billion (equal to 1.0 percent of GDP), well below its euro zone 
counterparts.  Notably, inflows were exceeded by outflows - USD 34.1 
billion in 2006. 
 
Table 1: Italian Foreign Direct Investment Inflows by Economic 
Sector (Net) 2003-2006 (USD Millions) (1) (*) 
 
                2003       2004       2005       2006 
 
Agriculture    108.5      234.8      511.8     -662.1 
 
Energy        1993.8     4463.3    10057.1     4104.3 
 
Industry      5933.1     2016.2     6996.3     7549.0 
 of which: 
Machine       2023.9     3690.7     1314.3     4871.9 
Chemical      1066.8    -3535.4      441.0      168.3 
Food          2483.5      362.7     2388.8     1839.2 
Textiles       353.4      513.0      544.1      810.3 
Mineral/Metal  468.5      687.0     1315.5      143.2 
Other         -463.0      298.2      992.6     -283.9 
 
Building and 
Public Works   363.0      125.7      205.0      283.9 
 
Services      6634.2     9576.4      925.5    18639.5 
 of which: 
Banking/ 
Insurance     2972.2     5749.1     1207.5     8810.3 
Trade          410.4       36.0      653.4     3570.4 
Transportation/ 
Communication -412.6      516.8   -11468.3     2027.6 
Other Services 
(Not For Sale)3664.4     3274.5    10532.9     4231.2 
 
T O T A L    15031.9    16416.2    18695.7    29914.6 
 
 
Table 2: Italian Direct Investment Outflows by Economic Sector (Net) 
2003-2006 (USD Millions) (1) (*) 
 
                2003       2004       2005       2006 
 
Agriculture     38.0       21.1       70.8       42.7 
 
Energy        3450.7     5336.7     2675.8     3775.1 
 
Industry      1332.9     7573.9     7629.8    13501.3 
 of which: 
Machine      -1393.3     4234.8     3684.5     9218.6 
Chemical       721.2     1730.4     1730.4     2267.6 
Food           295.2      151.6      206.2      623.1 
Textiles       336.6      287.0      411.2      275.1 
Mineral/Metal  274.0      246.0      600.0     -224.9 
Other         1099.2      924.1      997.5     1341.8 
 
Building And 
Public Works   223.6       85.7      159.0     -113.1 
 
Services      1935.7     5037.3     7444.7    16881.9 
 of which: 
Banking/ 
Insurance     5492.6     2636.0     5164.6    10797.7 
Trade          485.3     1060.9      923.0     1075.4 
Transportation/ 
Communication-8217.6     -923.0      110.6     2069.1 
Other Services 
(Not For Sale)4175.4     2263.4     1264.6     2939.7 
 
T O T A L     6980.9    18054.7    17980.1    34087.9 
 
 
 
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Table 3a: Stock of Foreign Direct Investment in Italy by Major 
Investors; Year End 2003-2006 (USD Millions) (1) 
 
                   2003      2004      2005      2006 
 
United States   19458.1   22448.3   21451.0   25826.1 
 
EU (3)         114010.0  140651.5  145179.5  185773.4 
 of which: 
 France         21294.1   24608.6   25637.5   37040.8 
 Netherlands    26882.4   39009.4   40079.1   54304.3 
 United Kingdom 22266.6   26613.9   25434.5   30461.1 
 Germany        13797.2   14312.3   15309.3   11263.5 
 Luxembourg     18354.2   22336.5   24042.5   27911.7 
 Sweden          2967.5    3341.8    3034.2    3533.6 
 Belgium         2963.7    3335.1    1982.3    2353.1 
 Spain           1279.1    1941.0    4820.5   11764.2 
 Other EU (4)    4205.3    5286.9    4839.4    7141.0 
 
Switzerland     18481.9   21872.7   20115.7   23446.6 
Liechtenstein    1824.8    2105.9    1975.2    2330.7 
Japan            2991.2    3595.2    3419.1    3967.1 
Argentina         165.2     257.4     246.8     288.5 
Brazil             78.8     128.7     184.2     320.2 
Other            7806.0    9328.5    8747.3   10430.8 
 
T O T A L     164,816.0 200,379.4 201,318.8 252,383.4 
 
 
Table 3b: Stock Of Foreign Direct Investment In Italy by Major 
Investors; Year End 2003-2006 (Percentage of Total) 
 
                    2003      2004      2005      2006 
 
United States       11.8      11.2      10.7      10.2 
 
EU                  69.2      70.2      72.1      73.6 
 France             12.9      12.3      12.7      14.7 
 Netherlands        16.3      19.5      19.9      21.5 
 United Kingdom     13.5      13.3      12.6      12.1 
 Germany             8.4       7.1       7.6       4.5 
 Luxembourg         11.1      11.1      11.9      11.1 
 Sweden              1.8       1.7       1.5       1.4 
 Belgium             1.8       1.7       1.0       0.9 
 Spain               0.8       1.0       2.4       4.7 
 Other EU (3)        2.6       2.6       2.4       2.7 
 
Switzerland         11.2      10.9      10.0       9.3 
Liechtenstein        1.1       1.1       1.0       0.9 
Japan                1.8       1.8       1.7       1.6 
Argentina            0.1       0.1       0.1       0.1 
Brazil               0.0       0.1       0.1       0.1 
Other                4.8       4.6       4.3       4.2 
 
T O T A L          100.0     100.0     100.0     100.0 
 
 
Table 4a: Stock Of Italian Direct Investment Abroad by Major 
Recipient; Year End 2003-2006 (USD Millions) (2) 
 
                   2003      2004      2005      2006 
 
United States   18420.5   18851.2   19617.5   26118.6 
 
EU             150010.0  182521.4  178145.2  217375.5 
 Netherlands    48455.6   63268.1   65081.5   89822.1 
 Luxembourg     21755.9   26363.3   25154.7   22632.4 
 France         20921.2   24344.5   23866.6   29574.4 
 United Kingdom 20270.3   24158.2   22617.5   24847.2 
 Germany        13065.1   15758.7   15004.7   18126.5 
 Spain           9871.1   10882.0    9866.6   12350.5 
 Belgium         4569.5    5308.3    4944.5    6254.3 
 Sweden           748.4     866.3     892.6    1087.0 
 Other EU (3)   10352.9   11572.4   10716.6   12681.1 
 
Switzerland     10954.9   10559.0   10007.1   11411.1 
Brazil           3473.1    3954.4    4935.1    5645.6 
Argentina        2127.7    2178.3    2211.3    2308.3 
Japan            1137.7    1249.9    1164.1    1196.2 
Liechtenstein     169.0     194.4     175.9     200.3 
Other           22342.9   24901.6   26460.5   41685.1 
 
T O T A L      208635.8  244410.2  243982.3  305940.7 
 
 
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Table 4b: Stock of Italian Direct Investment Abroad by Major 
Recipient; Year End 2003-2006 (Percentage of Total) 
 
                   2003      2004      2005      2006 
 
United States       8.8       7.7       8.0       8.5 
 
EU                 71.9      74.7      73.0      71.1 
of which: 
 Luxembourg        10.4      10.8      10.3       7.4 
 Netherlands       23.2      25.9      26.7      29.4 
 France            10.0      10.0       9.8       9.7 
 Germany            6.3       6.4       6.1       5.9 
 United Kingdom     9.7       9.9       9.3       8.1 
 Spain              4.7       4.5       4.0       4.0 
 
 Belgium            2.2       2.2       2.0       2.0 
 Sweden             0.4       0.4       0.4       0.4 
 Other EU (3)       5.0       4.7       4.4       4.2 
 
Switzerland         5.4       4.3       4.1       3.7 
Brazil              1.7       1.6       2.0       1.8 
Argentina           1.0       0.9       0.9       0.8 
Japan               0.5       0.5       0.5       0.4 
Liechtenstein       0.1       0.1       0.1       0.1 
Other              10.6      10.2      11.4      13.6 
 
T O T A L         100.0     100.0     100.0     100.0 
 
 
Table 5a: U.S. Investment in Italy by Economic Sector End-Year 
2003-2006 (USD Millions) (2) 
 
                   2003      2004      2005      2006 
 
 
Agriculture        36.3      40.2      41.3      46.1 
 
Energy            545.7     627.6     576.2     678.5 
 
Industry        11812.3   13607.1   12958.7   15080.4 
 of which: 
Machine          2635.8    2979.7    2792.2    3205.5 
Transportation 
Equipment         782.2     902.5     830.0     971.0 
Chemical         3162.7    3689.1    3447.5    4031.6 
Food             1667.1    1920.3    2003.5    2321.5 
Textiles          230.3     273.6     260.9     304.3 
Minerals/Metals   395.5     451.9     433.3     502.0 
Other            2938.7    3390.0    3191.3    3744.4 
 
Services         7063.8    8173.4    7874.8   10021.1 
 of which: 
Trade             853.6     987.0     933.9    1097.5 
Banking/ 
Insurance        3505.6    4008.2    3771.0    4789.2 
Transportation/ 
Communication     582.0     666.5     636.4    1055.3 
Other Services   2122.7    2511.7    2533.5    3079.1 
 
T O T A L       19458.1   22448.3   21451.0   25826.1 
 
 
Table 5b: U.S. Investment in Italy by Economic Sector End-Year 
2003-2006  (Percentage of Total) 
 
                   2003      2004      2005      2006 
 
Agriculture         0.2       0.2       0.2       0.2 
 
Energy              2.8       2.8       2.7       2.6 
 
Industry           60.7      60.6      60.4      58.4 
 of which: 
Machine            13.6      13.3      13.0      12.4 
Transportation 
Equipment           4.0       4.0       3.9       3.8 
Chemical           16.3      16.4      16.1      15.6 
Food                8.6       8.6       9.3       9.0 
Textiles            1.2       1.2       1.2       1.2 
Minerals/ 
Metals              2.0       2.0       2.0       1.9 
Other              15.0      15.1      14.9      14.5 
 
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Services           36.3      36.4      36.7      38.8 
 of which: 
Trade               4.4       4.4       4.3       4.2 
Banking/ 
Insurance          18.0      17.9      17.6      18.5 
Transportation/ 
Communication       3.0       3.0       3.0       4.1 
Other Services     10.9      11.1      11.8      12.0 
 
T O T A L         100.0     100.0     100.0     100.0 
 
 
Table 6a: Italian Investment in the U.S. by Economic Sector -- 
End-Year 2003-2006 (USD Millions) (2) 
 
                   2003      2004      2005      2006 
 
Agriculture        51.3      52.3      62.6      71.1 
 
Energy           1816.0    1831.8    1877.2    2075.1 
 
 
Industry         7061.3    7254.8    7589.1   13080.4 
 of which: 
Machine          2732.2    2777.2    2850.1    7910.4 
Transportation 
Equipment         863.6     950.8     966.9    1001.3 
Chemical          261.6     205.2     212.5     332.0 
Food              264.1     273.6     289.3     304.3 
Textiles          724.7     741.6     813.5     851.1 
Minerals/ 
Metals           1541.9    1589.1    1637.5    1724.6 
Other             673.3     717.3     819.4     956.7 
 
Services         9491.9    9719.6   10088.5   10892.0 
 of which: 
Trade            1142.7    1177.4    1201.9    1241.1 
Banking/ 
Insurance        4434.3    4615.7    4796.9    5035.6 
Transportation/ 
Communication     274.1     232.0     242.0     278.0 
Other            3640.8    3694.5    3847.7    4337.3 
 
T O T A L       18420.5   18858.5   19617.5   26118.6 
 
 
Table 6b: Italian Investment in the U.S. by Economic Sector -- 
End-Year 2003-2006 (Percentage of Total) 
 
                   2003      2004      2005      2006 
 
Agriculture         0.3       0.3       0.3       0.3 
 
Energy              9.9       9.9       9.6       7.9 
 
Industry           38.8     38.3      38.7       50.1 
 of which: 
Machine            14.3     14.8      14.5       30.3 
Transportation 
Equipment           4.5      4.7       4.9        3.8 
Chemical            2.9      1.4       1.1        1.3 
Food                1.4      1.4       1.5        1.2 
Textiles            3.8      3.9       4.2        3.3 
Minerals/ 
Metals              8.3      8.4       8.3        6.6 
Other               3.6      3.7       4.2        3.6 
 
 
Services           51.0     51.5      51.4       41.7 
 of which: 
Trade               4.0      6.2       6.1        4.8 
Banking/ 
Insurance          24.0     24.1      24.5       19.3 
Transportation/ 
Communication       2.6      1.5       1.2        1.1 
Other              20.4     19.7      19.6       16.5 
 
T O T A L         100.0      100.0    100.0     100.0 
 
 
Table 7: Direct Investment by Origin and Destination End-Year 2006 
(USD Millions) (4) 
 
 
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               Foreign         Italian         Net 
               Investment      Investment      Italian 
               in Italy        Abroad          Position 
 
EU              185773.4       217375.5        31602.1 
 of which: 
  United Kingdom 30461.1        24847.2        -5614.0 
  Netherlands    54304.3        89822.1        35517.8 
  Germany        11263.5        18126.5         6863.0 
  France         37040.8        29574.4        -7466.4 
  Spain          11764.2        12350.5          586.3 
  Luxembourg     27911.7        22632.4        -5279.3 
  Belgium         2353.1         6254.3         3901.2 
  Sweden          3533.6         1087.0        -2446.6 
  Other (3)       7141.0        12681.2         5540.2 
 
Non-EU           66610.0        88565.2        21955.2 
 of which: 
 USA             25826.1        26118.6          292.5 
 Switzerland     23446.6        11411.1       -12035.6 
 Liechtenstein    2330.7          200.3        -2130.4 
 Japan            3967.1         1196.3        -2770.8 
 Canada            940.7         1370.2          429.5 
 Argentina         288.5         2308.3         2019.8 
 Brazil            320.2         5645.6         5325.4 
 Other            9490.1        40314.9        30824.8 
 
T O T A L       252383.4       305940.7        53557.3 
 
 
(1) Annual net investment flow data compiled by Embassy Economic 
Section, based on Bank of Italy data and converted at the following 
end-year exchange rates: 
 
                   2003      2004      2005      2006 
 
Euro/Dollar       0.894     0.805     0.805     0.796 
 
Net = New Investment Less Disinvestment.  The volatility and huge 
changes from year to year in some sections can be explained in part 
by the fact that listed data are "Net": New Investment Minus 
Disinvestment. 
 
(2) Compiled by the Economic Section of the Embassy based on Bank of 
Italy data and converted at the following end year exchange rates: 
 
                   2003      2004      2005      2006 
 
 
Euro/Dollar       0.799     0.746     0.847     0.759 
 
(3) Austria, Denmark, Finland, Portugal, Greece, Ireland (other EU 
25 countries), plus Cyprus, Czech Republic, Estonia, Hungary, 
Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. 
 
(4) Original data in euro and converted at the end-2006 exchange 
rate of one dollar = 0.759 euro. 
 
Sources:  Bank Of Italy Annual Report 2006. 
 
SPOGLI